Morgan Stanley says buy these defensive growth stocks as economy disappoints

Published Mon, Sep 18 20232:34 PM EDT

In an uncertain market environment, Morgan Stanley thinks investors can regain confidence with some large-cap defensive stocks. The firm screened for stocks that have shown relative strength both year-to-date and more recently, in terms of equal weight performance. All are members of the top 1000 by market cap universe, have outperformed on a year-to-date basis, and are classified as a growth stock based on Morgan Stanley's proprietary factor classification model. Also, each of the companies are rated overweight by the firm. "In the absence of more definitive data around the remaining duration of the business cycle, we think the market will trade in a 'late cycle' manner," said analyst Michelle Weaver in a Monday note. "In our view, the best way to express that in a portfolio is to hold a barbell of defensive growth (select growth stories and more traditional defensive sectors like Healthcare and Consumer Staples) with late-cycle cyclicals (Industrials and Energy)." Here are some names from Morgan Stanley's playbook: McDonald's is a sure defensive play, according to the firm. Shares of McDonald's have gained 5.7% so far this year and hovered above flat on Monday, with recent losses this quarter driven by the company's pushback against a recently passed landmark fast-food bill that raises the wage floor for California workers. An independent advocacy group of McDonald's owners has said the memo will be a "devastating financial blow" to its franchisees in the state. Still, Morgan Stanley analysts view the burger chain as a growth stock that is set to outperform in the coming months. Costco is another one of Morgan Stanley's picks. Shares of the membership-based warehouse retailer have soared by more than 23% this year, as Costco benefits from shoppers who are increasingly putting their money towards value. Costco is set to release its fiscal fourth-quarter earnings on Sept. 26. Its monthly U.S. sales report has been positive since last quarter, driven by strong traffic. The stock gained 1.3% on Monday. The firm also likes Apple . Analysts surveyed by FactSet have assigned an overweight rating on the tech giant with a $200.72 average price target, indicating 14.7% upside for the stock. The tech giant's plunge this quarter was fueled by China's iPhone ban among government employees , which undermined investor confidence in Apple's largest foreign market. The stock is still up nearly 38% this year. Other names from the screen include emerging AI play Accenture , discount retailer Ross Stores , animal drug company Zoetis and global hotel chain Marriott .